NAM/IndustryWeek Survey of Manufactures Business Outlook by Quarter, 2012-2014

The June jobs numbers provided mixed news on the labor market, but more than anything, they suggest that the U.S. economy remains much weaker than desired, particularly for manufacturing. On the positive side, manufacturers added 14,000 workers in June, which was encouraging. In addition, average weekly earnings among manufacturers have increased 3.7 percent over the past 12 months, which was a relatively healthy jump. Yet, the sector has lost 24,000 employees through the first six months of 2016 — a sign that business leaders remain cautious in light of global headwinds and soft demand and production growth.

Other economic indicators out recently tended to echo those ongoing challenges for manufacturing. The U.S. trade deficit rose to a three-month high in May, largely from an increase in goods imports. The bottom line is that manufacturers continue to struggle with international demand, particularly with a strong U.S. dollar and lingering economic challenges to key markets. Using non-seasonally adjusted data, U.S.-manufactured goods exports totaled $431.45 billion year-to-date in May, down 7.5 percent from $466.49 billion in May 2015. Along those lines, exports to our top-five markets for U.S.-manufactured goods have declined 7.5 percent year-to-date relative to the same time frame last year, using non-seasonally adjusted data. More positively, the May petroleum deficit of $2.89 billion was the lowest since February 1999.

Moreover, new orders for manufactured goods have been relatively weak over the past 12 months, with a year-over-year decline of 1.2 percent. Excluding transportation, new factory orders have declined 3.4 percent since May 2015. This suggests broader softness for manufacturers in terms of demand, perhaps highlighting why business leaders in the sector continue to be so cautious. In May, new factory orders fell 1.0 percent, ending two straight monthly gains.

Meanwhile, nonfarm payrolls rose by more than expected in June, up 287,000. This would have been more promising if not for the downward revision to May, up by just 11,000 instead of the originally reported figure of 38,000. Indeed, nonfarm payroll growth has eased year-to-date. The U.S. economy averaged 147,333 additional nonfarm payroll workers in the second quarter, slowing from the 282,000 and 195,667 average paces in the fourth quarter of 2015 and the first quarter of this year, respectively. Along those lines, the unemployment rate rose from 4.7 percent in May to 4.9 percent in June, largely on an uptick in the participation rate from 62.6 percent to 62.7 percent. In addition, the so-called real unemployment rate, which includes discouraged workers, the underemployed and those working part time for economic reasons, remained elevated at 9.6 percent despite edging lower for the month.

The big question, of course, is how the data impact decision-making at the Federal Reserve. The Federal Open Market Committee (FOMC) is likely to continue hitting the pause button at its July meeting as enough uncertainties remain in the global marketplace and recent job growth continues to be weaker than desired. Yet, if upcoming data show forward movement on jobs and if other economic indicators continue reporting progress, there will be a renewed focus on the September or December FOMC meetings for a possible short-term rate hike. Either way, it appears more and more likely it is “one and done” for increases in the federal funds rate in 2016, which is clearly a shift from the plans for four rate hikes expected at the end of 2015.

This week, we will get the latest data on industrial production. Manufacturing output was off 0.4 percent in May and essentially stagnant on a year-over-year basis, and we will be looking for signs of a rebound in the June release. The New York Federal Reserve Bank’s monthly survey will also give us our first read on manufacturing sentiment for July, and the question for that report will be whether it can extend the progress seen in the June data. We hope that the latest consumer confidence numbers from the University of Michigan and small business optimism figures from the National Federation of Independent Business will provide some evidence of continued sentiment gains. Of course, such surveys will be closely watched to see if perceptions have shifted post-”Brexit.”